This article covers economic relations between India and Nepal: trade in goods and services, Indian investment in Nepal, power trade and hydropower, cross-border transmission lines, cooperation in water resources and petroleum pipelines. It draws on the MEA brief of July 2026 on relations between the two countries.

India's economic role in Nepal

According to the MEA brief of July 2026, India is Nepal's largest partner in terms of trade and investment. Several key bilateral documents guide this engagement, including the treaties of Trade and Transit.

Trade in goods and services

India-Nepal goods trade was worth about US$ 9.38 billion in Financial Year 2025-26. The brief states that this represents more than 60% of Nepal's total external goods trade.

India is also Nepal's biggest export destination. It received more than 80% of Nepal's goods exports in FY 2025-26. In services, trade between India and Nepal makes up about 1/3rd of Nepal's total external trade in services, according to the brief.

Indian investment in Nepal

India is the largest source of foreign investment in Nepal, accounting for almost 1/3rd of the total FDI received by the country. As of the brief, the estimated value of Indian investments is about US$ 800 million.

These investments, in about 150 ventures, are mainly in the banking, insurance, dry port, education, telecom, power and tourism sectors.

Power trade

The Joint Vision Document on Power Sector Cooperation, signed in 2022, envisages among other things the joint development of power projects, cross-border transmission lines, bi-directional power trade and coordinated operation of national grids. The Power Trade Agreement signed in 2014 envisages the export of 10,000 MW of power by Nepal to India.

Bilateral mechanisms guiding cooperation in this area include a Joint Steering Committee and a Joint Working Group. The brief states that Nepal exported about 1100 MWs of electricity to India last year, and also sent power to Bangladesh through the Indian grid.

Cross-border transmission lines

The brief gives the following position on major cross-border transmission lines:

  • Muzaffarpur-Dhalkebar: a major high-capacity line, currently operational; its Nepal section was built with Indian assistance
  • Gorakhpur-Butwal: the second high-capacity line, at an advanced stage of implementation
  • Dododhara-Bareilly and Inaruwa-Purnea: JV Agreements for these two major lines have been signed

Three more 132 kV capacity cross-border lines were inaugurated in 2024. Several other transmission lines have been funded through Indian Lines of Credit.

Hydropower projects

SJVN, an Indian Public Sector company, is developing the Arun-III project, which the brief says will be the largest power project in Nepal once operationalised (900 MW). SJVN is also developing the Lower Arun project, which will have a capacity of about 670 MW.

Various other hydropower projects with Indian participation are at different stages of discussion and implementation.

Water resources and hydropower development

There are three-tier bilateral mechanisms to discuss cooperation in water resources, flood management, inundation control and hydropower development. Various treaties and understandings also guide this engagement, and specific matters are taken forward through various mechanisms.

In the past, flood management and river training works were carried out on the Kamala, Bagmati and Lalbakeya rivers through Indian grant assistance of INR 900 crores. The Government of India has also funded mutually agreed emergency works from time to time.

Petroleum pipelines

The first regional cross-border petroleum pipeline was inaugurated between Raxaul and Amlekhgunj in 2019 (41 km length). It was funded and constructed by the Indian Oil Corporation. The brief also lists the Motihari-Amlekhgunj Petroleum Pipeline (MAPL) among the connectivity initiatives delivered with Indian assistance.

An MoU for a new pipeline between Siliguri and Jhapa and for building two new greenfield terminals in Chitwan and Jhapa was signed in 2023. The brief places the Siliguri-Jhapa pipeline, the extension of the existing oil pipeline from Amlekhgunj till Chitwan and the two terminals among initiatives that are nearing completion or at various stages of understanding or implementation.